9911796707
TMI Blog2014 (11) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... closely linked transactions were to be taken as a whole and not separately, thereby creating artificial loss in one segment and profit in the other - the trading functions having the same FAR and having closely linked transactions were to be taken as a whole and not separately, therefore, creation of artificial loss in one segment and creation of artificial profit in the other segment is not permissible - both segments have to be taken as a whole and additions confirmed by the CIT(A) on the basis of segregation deserve to be set aside – Decided in favour of assessee. Reliance on Special Valuation Cell of the custom's department – Held that:- In Panasonic India Pvt. Ltd. Versus ITO [2010 (9) TMI 682 - ITAT, DELHI] the same matter had been decided wherein it has been held that where specific rules of law exist in the Statute on a particular subject, then they would hold the field - Chapter X and Rules made thereunder are a self- contained code and answers to all questions must be found in the written law contained in the Act and Statute - the Customs valuation is for different purposes and Chapter X of the Income Tax Act is for different purposes and different criteria are being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of assessee. Validity of unallocated expenses and income to the ISD division of the assessee – Held that:- In Panasonic India Pvt. Ltd. Versus ITO [2010 (9) TMI 682 - ITAT, DELHI] the same matter had been decided wherein it has been held that there is substance in the submissions of the assessee that out of a total business of ₹ 361 cores, the ISD service and commission income is only ₹ 12,28,831/-. It is unreasonable to allocate ₹ 20,59,669/- as expenditure on such a meager gross receipt - three years average is being taken on the ISD Division on the basic facts of the case following the Proviso to Rule 10B(a) even if it is taken to the basis of ISD Division, it will not make any difference - the addition cannot be made in the overall facts and circumstances on the issue of allocation of unallocated expenses and income to the ISD Division following the proviso to Rule 10B(a) of Income Tax Rules 1962 – Decided in favour of assessee. Computation of the Arm’s Length Price – Held that:- In Panasonic India Pvt. Ltd. Versus ITO [2010 (9) TMI 682 - ITAT, DELHI] the same matter had been decided wherein it has been held that the CIT(A) is right in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds raised by the assessee in AY 2003-04 read as under:- 1.0 That the Ld. CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in holding that the segregation of trading functions pertaining to the CPD and SPD divisions of the assessee were properly done by TPO although : i) Functions performed, risk assumed and assets employed by both the divisions were identical. ii) Method employed for determining the arm's length i.e. TNMM was proper. iii) The PLI of the comparables was alright. 2.0 That the order passed by the CIT (A) is bad in law and on the facts in the circumstances of the appellant's case on the aspect of transfer pricing in which addition of Rs.l,15,03,254/- has been confirmed by CIT (A) u/s 92CA (3) of the I.T. Act. 3.0 That the CIT (A) has grossly erred in holding that segregation of CPD and SPD division of the assessee, which are two trading divisions was proper, merely on the ground that the target customers of these two divisions were different. 4.0 The CIT (A) ought to have held that under the TNMM method it is the broad functions which are required to be compared and if most of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs for determining the NPM. 14.0 The CIT (A) has grossly erred in holding that allocation of the unallocated expenses and income to the ISD division of the assessee was proper by the TPO 15.0 That the aforesaid grounds of appeal are without prejudice to one another. 3. The grounds raised in AY 2004-05 are similar, therefore, these are being adjudicated by this consolidated order. Ground no. 1 to 8 of the assessee in both the apepals 4. We have heard arguments of both the sides and carefully perused the material placed on record. Ld. AR submitted a written synopsis and has drawn our attention towards decision of ITAT F Bench New Delhi in assessee s own case i.e. ITA No. 1417/D/2008 for AY 2002-03 dated 24.9.2010 reported as 2010-TII-47-ITAT-DEL-TP and submitted that the issue of segregation vs aggregation of the CPD and SPD divisions and the acceptance with same comparables for both the divisions has been decided in favour of the assessee and the present appeals of the assessee are squarely covered in favour of the assessee by this order of the Tribunal in assessee s own case. Ld. DR submitted that the department is intending to challenge this order in the high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and as per the provisions laid down in the Transfer Pricing Regulations in India, the assessee succeeds on these grounds. The segregation was totally artificial and uncalled for and the authorities below were not justified in segregating them. The trading functions having the same FAR and having closely linked transactions were to be taken as a whole and not separately, thereby creating artificial loss in one segment and profit in the other. Both have to be taken as a whole and the additions made by TPO and confirmed by CIT(A) for doing this segregation are required to be deleted. 6. In view of above order of the Tribunal in assessee s own case (supra), we are inclined to hold that the facts and circumstances of the extant case and as per provisions of transfer pricing regulations in India, the issue has been decided in favour of the assessee for AY 2002-03. Therefore, we further hold that the issue is squarely covered in favour of the assessee and the assessee succeeds on these grounds as the segregation emanated by the authorities below was totally artificial and uncalled for and the impugned segregation was not justified under the factual matrix of the case. We are also in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law contained in the Act and Statute. Here we are inclined to agree with ld CIT DR that that Customs valuation is for different contained in the Act and Statute. Here we are inclined to agree with ld. CIT DR that the Customs valuation is for different purposes and Chapter X of the Income Tax Act is for different purposes and different criteria are being used. 38. In the result ground no. 9 of assessee s appeal is dismissed. 9. Accordingly, we concluded that ground no. 9 of the assessee in both the appeals is squarely covered in favour of the assessee and against the revenue. Thus, ground no. 9 in both the appeals is dismissed. Ground no. 10, 11, 12 13 of the assessee in both the appeals 10. Apropos these grounds, ld. AR has drawn our attention towards the decision of the Tribunal for AY 2002-03 (supra) para 23 at page 37 and submitted that the issue has been decided in favour of the assessee and against the revenue by holding that the TPO and the CIT(A) were wrong in excluding the reimbursement of advertisement expenditure while calculating the PLI of the assessee. Ld. AR has drawn our attention towards para 23 at page 37 and para 26 at page 40 of the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by CIT(A) amounting to ₹ 1,23,48,509/- is ordered to be deleted. 11. Ld DR submitted that the department is taking up the issue of treatment of advertisement subsidy received as non-operating and the issue of adjustment on account of advertisement expenses to level the field between the comparables and the assessee to the Hon ble higher forum. At the same time, the DR fairly accepted that till date, he is unable to show any contrary decision on this issue which may take us to accept any different view on this issue of advertisement subsidy, adjustment of advertisement expenses and reimbursement of advertisement expenses by the assessee s associated enterprises as a nonoperating revenue receipt. 12. In view of above and on careful perusal of the order of the Tribunal for AY 2002-03 (supra), we note that ground no. 10 to 13 in both the appeals are squarely covered in favour of the assessee and against the revenue by the order of the Tribunal for AY 2002-03 (supra). We are of the considered opinion that under factual matrix of the instant case, we are in agreement with the conclusion of the Tribunal that Rule 10B(2)(c) states that the contractual terms (whether or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n where two divisions are to be treated separately, the department ought not to be used the same set of comparables which were used by the TPO and the CIT(A) for both the divisions, then the PLI of comparables for the CPD Division would have to be adjusted as per provisions of Rule 10B(1)(e)(iii) of the Income Tax Rules, 1962. 16. The Tribunal in assessee s own case for AY 2002-03 concluded that the trading transactions of the assessee are at arm s length and no adjustment is required. On specific query from the Bench, ld. DR seems to be unable to submit any fact or material before us which may compel us to take a different view on the issue of adjustment on account of huge advertisement cost incurred by the assessee, specially in the peculiar facts and circumstances of the present case whereas the comparable cases had not incurred similar huge amount of advertisement cost for determining the NPM. From the order of the Tribunal for AY 2002-03 (supra), in para 26 at page 40, it has been held that in view of the correct analysis and working as given by the assessee on the comparison between comparable used by the assessee and the accepted comparables by correcting the two errors c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 36 para 9.6 of his order. The TPO has allocated non allcoated expenses of ₹ 6.05 crores to the three Divisions CPD, SPD and ISD whereas the assessee has allocated this entire expenditure to its trading functions, i.e. to CPD and SPD. The ld. AR contended that allocation of ₹ 20,59,661 to ISD is not correct as this expenditure has nothing to do with the sales commission and the service part of the assessee. The assessee submitted vide its letter dated 25th January 2005 on page 425 PB Vol. II that ISD is an independent Division and no part of head office expenditure could be allocated to it as it does not need head office support. In our view there is substance in the submissions of the learned AR that out of a total business of ₹ 361 cores, the ISD service and commission income is only ₹ 12,28,831/-. It is unreasonable to allocate ₹ 20,59,669/- as expenditure on such a meager gross receipt. In any case in view of the fact that three years average is being taken on the ISD Division on the basic facts of the case following the Proviso to Rule 10B(a) even if it is taken to the basis of ISD Division, it will not make any difference. 20. On careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data relating to the relevant year in which the international transaction has been entered into. Ld. AR supported the impugned orders and submitted that the conclusion of the CIT(A) has been upheld by the Tribunal in AY 2002-03 (supra) and the issue is squarely covered in favour of the assessee. 25. On careful and vigilant reading of the order of the Tribunal for AY 2002- 03 (supra), we note that the issue of data to be used for computation of ALP has been decided in para 35 by holding that the data to be used for comparability of an uncontrolled transaction with an international transaction of the assessee shall be the data of relevant year in which the international transaction has been entered into. The operative para 35 at page 44 of the order of the Tribunal reads thus:- 35. In the appeal of the Revenue the only ground raised is that Ld. CITCA) has erred in law and in facts and circumstances of the case in holding that only current year data for 2003-04 is to be used for computation of the Arm's Length Price. The ground raised by the revenue has already been discussed by us while disposing of the assessee's appeal in which we have reproduced Rule 10B(4) and Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken as many as nine grounds in both the appeals but except ground no. 1, other grounds of the assessee are argumentative and supportive to the main ground no. 1 in both the appeals which reads as under:- That the CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant case in upholding the action of the AO in levying the penalty u/s 271(1)( c) of the Income Tax Act. 29. Brief facts giving rise to these appeals are that the assessee is a subsidiary company of M/s Matsushita Electric Industrial Co. Ltd. The main object of the appellant company vide the object clause was given as selling and distributing in domestic as well as in export market the products having the Matsushita Brand names of National Panasonic manufactured by the Matsushita Group and its various collaboration companies. The assessment was completed u/s 143(3) of the Act for AY 2003-04 on total income of ₹ 38,91,49,470/- as against returned negative income (loss) of ₹ 16,41,87,090/-. The AO made addition of ₹ 1,79,83,544/- on account of Transfer Pricing adjustment. The CIT(A) vide its order dated 31.1.2008 confirmed the addition to the extent of ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, it is further submitted that on the issue where two views are possible, penalty is not imposable and in every case where the claim of the assessee was not accepted or was not found to be acceptable by the revenue authorities, does not automatically attract penalty. The AR finally prayed that the penalty order passed by the AO and confirmed by the CIT(A) may kindly be set aside. He placed reliance on the decision of Hon ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. 33. Ld. DR replied that the result of the assessee s appeal for AY 2003-04 and AY 2004-05 cannot be noticed or considered at this stage and if the assessee is providing incorrect data and irrelevant comparables, then the addition made on the direction of the TPO attracts penalty. Ld. DR supported the orders of the authorities below. 34. We have considered rival submissions and contentions of both the parties and gone through the relevant material placed on record. From a careful perusal of the penalty order, specially operative part as reproduced hereinabove, we observe that the AO has imposed penalty on the issue of addition to the extent of ₹ 1,15,03,254 on account of ALP i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
